Tuesday, January 27, 2009

Cuba slumps back into hardship

Cuba slumps back into hardship
By Robert Plummer
Business reporter, BBC News

Cuba's socialist system has done little to protect the island from the
economic turmoil that has engulfed its capitalist adversaries.

The combined effect of higher international food prices, three
hurricanes and the general worldwide slowdown have pushed Cuba into its
worst financial crisis since the collapse of the Soviet Union.

Since an already ailing Fidel Castro stepped down as president in
February 2008, his brother Raul has announced some modest economic
reforms, such as legalising mobile phones and issuing licences for
private taxis.

But he has also had to promote austerity measures as well, including a
50% cut in foreign travel by government officials.

"The accounts don't square up," he told the National Assembly in
December 2008. "We have to be realistic and adjust our dreams to real

In recent years, subsidised Venezuelan oil and Chinese investment deals
became Havana's latest means of shoring up basic living standards and
defying the US economic embargo.

But falling oil prices have put Venezuelan President Hugo Chavez's
"Bolivarian revolution" under pressure, while the Chinese economy is
starting to falter as world demand slows.

War of attrition

Economically and politically, Cuba is a long way from the revolutionary
confidence it enjoyed during the height of the Cold War in the early and

By that stage, the island had successfully overcome the worst that the
US could throw at it.

The turmoil of the 1960s, marked by the abortive Bay of Pigs invasion
and the Cuban missile crisis, had given way to a sullen war of attrition
that continues to this day.

But Fidel Castro reacted to Washington's trade embargo by forging
ever-closer links with the Soviet Union and its Comecon network of
Eastern bloc states.

Moscow propped up the Cuban economy by buying a huge chunk of the
country's sugar crop at inflated prices, while providing cheap supplies
of crude oil.

Despite this lifeline, conditions were not particularly comfortable even
then for ordinary Cubans, who had been subject to rationing since the US
embargo began in 1962.

Not just food, but even clothing was rationed. Every Cuban was entitled
to two shirts, a pair of trousers, a pair of shoes and two pairs of
underpants a year.

Vanguard hopes

These items, of course, were produced on a one-size-fits-all basis,
under a rigidly centralised state planning system more concerned with
meeting quotas than aspiring to elegance.

But back then, Cuba could still bask in the belief that its much-vaunted
revolution had put it in the vanguard of history.

When Chile's Salvador Allende became the world's first democratically
elected Marxist president in 1970, the Cuban model started to look
eminently exportable to other parts of Latin America.

The following year, Fidel Castro paid a month-long visit to Chile,
during which he hosted huge rallies and gave public advice to the
country's Popular Unity coalition.

The visit undoubtedly exacerbated the political polarisation in Chile
that led to Mr Allende's overthrow by General Augusto Pinochet in 1973.

After the violent coup in Santiago, Cuba provided a refuge for many
Chilean Communists.

Yet officials in Havana remained unabashed by the failure to build
socialism in Chile, suggesting that their own experience showed that
armed struggle, not peaceful change, was the way to defeat capitalism.

Reform spurned

These comforting illusions became harder to sustain once Cuba's cosy
relationship as a client state of the Soviet Union began to unravel.

From 1987 onwards, Soviet leader Mikhail Gorbachev began to introduce
wide-ranging economic reforms under the process known as perestroika.

For the first time, a socialist command economy began grappling with
previously alien concepts such as supply and demand, private enterprise,
joint ventures and even bankruptcy.

Fidel Castro wanted to retain the economic benefits provided by Moscow,
but had no intention of allowing any kind of liberalisation in Cuba.

Not even an official visit by Mr Gorbachev in April 1989 could persuade
his Cuban counterpart to reform.

But mere months later, after the fall of the Berlin Wall and other
sweeping political changes in Eastern Europe, Mr Castro could see that
hard times lay ahead.

"We are witnessing sad things in other socialist countries, very sad
things," he said in a speech that November, mindful of the fact that 75%
of Cuba's trade was with the soon-to-be-dissolved Comecon bloc.

Changes reversed

That historic failure of the main alternative to free-market capitalism
has pretty much set the scene for Cuba's current economic plight.

After the dissolution of the Soviet Union in 1991, Fidel Castro decreed
a "Special Period" of hardship and allowed a few modest steps towards a
market-oriented system.

Cubans were allowed to set up restaurants in their homes, known as
"paladares", while independent farms and farmers' markets also sprang
up, encouraged by the decision to let the US dollar circulate freely.

Most of those reforms were later reversed, after Venezuelan and Chinese
assistance gave Fidel the excuse he needed to tighten state control.

But now that this temporary respite from hardship is fading in its turn,
private sector farmers are again being encouraged to expand, in an
effort to cut Cuba's growing food import bill.

Since Raul Castro took over, many observers, without any real hard
evidence to go on, have been pinning their hopes on the prospect of
wide-ranging economic reforms.

But according to one leading conservative US think-tank, the Heritage
Foundation, the Cuban economy remains one of the world's least free,
with only Zimbabwe and North Korea ranked less favourably.

The Heritage Foundation's economic freedom index for 2009 gives Cuba a
score of 27.9, up from 27.5 in 2008, "reflecting marginally improved
scores in trade freedom and freedom from corruption".

So far, Raul Castro has shown little desire to embrace radical change.
Cuba may have to wait for a new generation of leaders before
liberalisation arrives.

Story from BBC NEWS:

Published: 2009/01/27 16:04:17 GMT

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